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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number 0-12489
SPECTRAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2729372
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Hall Road, Sturbridge, Massachusetts 01566
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 347-2261
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No.
The number of shares of the registrant's Common Stock outstanding as of
July 31, 1996, was 5,387,963.
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PART I - FINANCIAL INFORMATION
SPECTRAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended Three Months Ended
June 30, June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Net Sales $ 28,753,735 $ 17,064,463 $ 15,281,212 $ 9,099,384
Cost of Sales 18,679,936 11,329,407 9,963,632 6,257,904
------------ ------------ ------------ ------------
Gross Profit 10,073,799 5,735,056 5,317,580 2,841,480
Selling and Administrative Expenses 6,267,479 4,165,695 3,448,363 2,128,046
Research and Development Costs 1,580,542 1,412,545 671,263 659,100
------------ ------------ ------------ ------------
Income from Operations 2,225,778 156,816 1,197,954 54,334
Other Income (Expense):
Interest Income 120,729 168,184 52,817 83,561
Interest Expense (319,391) (253,731) (133,193) (151,918)
Other 63,045 84,099 29,267 27,953
------------ ------------ ------------ ------------
(135,617) (1,448) (51,109) (40,404)
------------ ------------ ------------ ------------
Income before Taxes 2,090,161 155,368 1,146,845 13,930
Income Tax Provision 573,481 64,235 314,070 5,711
------------ ------------ ------------ ------------
Net Income $ 1,516,680 $ 91,133 $ 832,775 $ 8,219
============ ============ ============ ============
Weighted Average Number of Shares of
Common Stock Outstanding 5,892,795 5,319,034 6,035,640 5,409,358
========= ========= ========= =========
Net Income per Share of Common Stock $.26 $.02 $.14 $--
==== ==== ==== ===
See accompanying notes to these condensed consolidated financial statements.
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SPECTRAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1996 December 31, 1995
------------- -----------------
(unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents $ 2,364,575 $ 1,624,515
Current Portion of Marketable Securities 957,025 4,088,316
Trade Accounts Receivable, net 8,804,735 7,798,517
Inventories 8,287,270 7,414,718
Current Deferred Income Taxes, net 588,000 588,000
Prepaid Expenses and Other Current Assets 690,226 513,356
------------ ------------
Total Current Assets 21,691,831 22,027,422
Property, Plant and Equipment, net 13,463,662 10,290,048
Other Assets:
Long-term Marketable Securities 1,382,642 1,132,682
License Agreements, net 903,975 1,004,417
Deferred Income Taxes, net 1,934,000 1,652,000
Goodwill, net 4,008,831 4,156,392
Other 183,005 101,751
------------ ------------
Total Other Assets 8,412,453 8,047,242
------------ ------------
Total Assets $ 43,567,946 $ 40,364,712
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 2,451,920 $ 2,762,265
Income Taxes Payable 512,248 224,576
Accrued Liabilities 3,614,820 3,082,431
------------ ------------
Total Current Liabilities 6,578,988 6,069,272
Long-term Debt 11,000,000 10,000,000
Stockholders' Equity:
Common Stock, voting, $.10 par value; authorized
20,000,000 shares; outstanding 5,380,397 shares and
5,353,686 shares in 1996 and 1995, respectively 538,040 535,369
Common Stock, non-voting, $.10 par value;
authorized 250,000 shares; no shares outstanding -- --
Paid-in Capital 26,599,632 26,442,794
Net Unrealized Loss on Marketable Securities (4,935) (22,264)
Retained Earnings (Deficit) (1,143,779) (2,660,459)
------------ ------------
Total Stockholders' Equity 25,988,958 24,295,440
------------ ------------
Total Liabilities and Stockholders' Equity $ 43,567,946 $ 40,364,712
============ ============
See accompanying notes to these condensed consolidated financial statements.
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SPECTRAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
1996 1995
----------- -----------
Cash Flows from Operating Activities:
Net Income $ 1,516,680 $ 91,133
Reconciliation of Net Income to Net Cash Provided by
(Used in) Operating Activities
Add (Deduct) Items Not Affecting Cash:
Depreciation and Amortization 1,467,450 1,035,307
Other Non-Cash Charges (286,019) (156,379)
Changes in Other Components of Working Capital (1,649,365) (1,172,696)
----------- -----------
Net Cash Provided by (Used in) Operating Activities 1,048,746 (202,635)
Cash Flows from Investing Activities:
Acquisition of Business -- (4,182,051)
Acquisition of Property, Plant and Equipment (4,361,360) (959,765)
Purchase of Marketable Securities (7,192,908) (1,400,222)
Proceeds from Maturity of Marketable Securities 2,953,765 --
Proceeds from Sale of Marketable Securities 7,132,308 2,491,181
----------- -----------
Cash Used in Investing Activities (1,468,195) (4,050,857)
Cash Flows from Financing Activities:
Borrowings of Long-term Debt 1,000,000 3,851,942
Proceeds from Exercise of Stock Options and Warrants 159,509 --
Proceeds from Issuance of Stock -- 422,498
----------- -----------
Cash Provided by Financing Activities 1,159,509 4,274,440
Increase in Cash and Cash Equivalents 740,060 20,948
Cash and Cash Equivalents at Beginning of Period 1,624,515 477,022
----------- -----------
Cash and Cash Equivalents at End of Period $ 2,364,575 $ 497,970
=========== ===========
See accompanying notes to these condensed consolidated financial statements.
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SPECTRAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial information for the six months ended June 30, 1996, is
unaudited but reflects all adjustments (consisting solely of normal recurring
adjustments) which the Company considers necessary for a fair statement of
results for the interim period. The results of operations for the six months
ended June 30, 1996, are not necessarily indicative of the results for the
entire year.
The consolidated results for the six months ended June 30, 1996,
include the accounts of SpecTran Corporation (the Company) and all wholly owned
subsidiaries: SpecTran Communication Fiber Technologies, Inc., SpecTran
Specialty Optics Company and Applied Photonic Devices, Inc. All significant
intercompany balances and transactions have been eliminated.
These financial statements supplement, and should be read in
conjunction with, the Company's audited financial statements for the year ended
December 31, 1995, as contained in the Company's Form 10-K as filed with the
United States Securities and Exchange Commission.
2. INVENTORIES
Inventories consisted of:
June 30, 1996 December 31, 1995
------------- -----------------
Raw Materials $ 3,848,729 $ 3,131,753
Work in Process 1,485,731 1,507,830
Finished Goods 2,952,810 2,775,135
--------------- ---------------
$ 8,287,270 $ 7,414,718
=============== ===============
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3. PROPERTY, PLANT AND EQUIPMENT
June 30, 1996 December 31, 1995
------------- -----------------
Property, plant and equipment consisted of:
Land and Land Improvements $ 407,705 $ 407,705
Buildings and Improvements 3,763,006 3,729,114
Machinery and Equipment 18,591,912 17,229,195
Construction in Progress 4,605,536 1,640,786
----------- -----------
27,368,159 23,006,800
Less Accumulated Depreciation and Amortization 13,904,497 12,716,752
----------- -----------
$13,463,662 $10,290,048
=========== ===========
4. INCOME PER SHARE OF COMMON STOCK
Income per share of common stock is based on the weighted average of
the number of shares outstanding during the periods, including common stock
equivalents of stock purchase warrants and stock options for both primary and
fully diluted earnings per share. Fully diluted income per share approximates
primary income per share.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1996 Versus Three and Six Months
Ended June 30, 1995
Overview
SpecTran's revenue increased 67.9% to $15,281,212 and the Company
earned net income of $832,775, or $.14 per share in the second quarter of 1996
compared with revenues of $9,099,384 and net income of $8,219, or less than one
cent per share in the second quarter of 1995. For the six month period ended
June 30, 1996 revenue increased 68.5% to $28,753,735 and the Company earned net
income of $1,516,680 or $.26 per share compared with revenues of $17,064,463 and
net income of $91,133 or $.02 per share for the comparable period of 1995. The
improved revenues and earnings in 1996 resulted from continued strong market
demand and improved gross profit margin for the Company's standard products, the
results of Applied Photonic Devices, Inc., acquired May 23, 1995 and increased
sales volumes of the Company's specialty products.
Net Sales
Consolidated net sales of $15,281,212 and $28,753,735 for the three and
six month periods ended June 30, 1996, were $6,181,828 (67.9%) and $11,689,272
(68.5%) higher than for the comparable periods of 1995. The increase in both
periods was primarily due to increased sales volumes of the Company's standard
multimode fiber products. Also contributing to the increase in the second
quarter and first six months of 1996 were sales of Applied Photonic Devices,
Inc., acquired by the Company May 23, 1995.
Gross Profit
SpecTran earned a consolidated gross profit of $5,317,580 and
$10,073,799 for the three and six months ended June 30, 1996, respectively,
which was $2,476,100 (87.1%) and $4,338,743 (75.7%) higher than the comparable
periods of 1995, respectively. The increase in gross profit was primarily due to
the higher sales level in the 1996 three and six month periods. The gross
margin, as a percentage of sales, increased to 34.8% in the second quarter of
1996 from 31.2% in the second quarter of 1995. For the six month period ended
June 30, 1996 the gross margin, as a percent of sales, increased to 35.0% from
33.6% in the comparable period of 1995. The increase in the margin was
principally due to lower production costs of the Company's standard products
resulting from manufacturing process improvements. This was offset in part by
lower margins earned by the APD cabling operation which was acquired in May
1995. Royalties expense was 4.0% and 4.1% of SpecTran's sales for the three and
six month periods, respectively, compared to 5.5% and 5.6% in the comparable
period of 1995, with a higher level of sales in 1996 not subject to royalties.
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Selling and Administration
Consolidated selling and administrative expenses increased by
$1,320,317 (62.0%) and $2,101,784 (50.5%) during the three and six month periods
ended June 30, 1996. The increase was primarily due to expenses incurred by
Applied Photonic Devices, Inc. in both periods of 1996. As a percentage of sales
these expenses decreased during 1996 to 22.6% and 21.8% compared to 23.4% and
24.4% for the comparable three and six month periods.
Research and Development
Consolidated spending for internal research and development increased
by $12,163 (1.8%) and $167,997 (11.9%) for the three and six month periods ended
June 30, 1996. Consolidated research and development costs decreased as a
percentage of sales to 4.4% and 5.5% in 1996 compared to 7.2% and 8.3% for the
comparable three and six month periods of 1995. The Company's increased research
and development spending is primarily in programs designed to improve
manufacturing cost and product performance in both the multimode and single-mode
product lines, to develop new special performance fiber products and to develop
alternative process technologies.
Other Income (Expense), net
Net other expense increased $10,705 (26.5%) and $134,169 (9266%) during
the three and six months ended June 30, 1996 compared to the same period of
1995. Interest income decreased by $30,744 (36.8%) and $47,455 (28.2%) during
the three and six months of 1996, respectively, primarily as a result of lower
investment balances than in the comparable periods of 1995. Interest expense
decreased during the second quarter of 1996 $18,725 (12.3%) as a result of
capitalization of interest expense on asset construction. Interest expense
increased during the six month period of 1996 by $65,660 (25.9%) as a result of
increased debt levels.
Income Taxes
A tax provision of 28% of pre-tax income was provided in the three and
six month periods of 1996 compared to a tax provision of 41% of pre-tax income
in the comparable periods of 1995. The estimated effective tax rate for 1996 of
28% is lower than the statutory tax rate due to an anticipated reduction in the
valuation allowance for deferred tax assets due to the Company's belief that it
is more likely than not that the additional deferred tax asset will be realized
through the utilization of operating loss and tax credit carryforwards.
Net Income
Net income for the three and six months of 1996 was $832,775, or 5.4%
of net sales, and $1,516,680, or 5.3% of net sales, respectively. Net income for
the same periods in 1995 was $8,219, or .1% of net sales, and $91,133 or .5% of
sales, respectively.
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Liquidity and Capital Resources
At June 30, 1996, the Company had net working capital of $15,112,905, a
current ratio of 3.3 to 1, and an aggregate of $2,364,575 in cash and cash
equivalents. In addition, the Company had total marketable securities of
$2,339,667 including $1,382,642 classified at long-term which could be converted
into cash if needed.
First half 1996 capital expenditures of $4,361,360 were made to
increase capacity and represented a $3,401,595 (354.4%) increase compared to
capital expenditures in the first half of 1995. The Company is planning
additional significant capital expenditures during the remainder of 1996 to
further expand capacity.
At June 30, 1996, the Company had outstanding an $11 million loan under
a revolving credit agreement with Fleet National Bank, leaving $1 million of
borrowing available under the agreement.
The Company expects but can not assure that existing working capital,
borrowings, and expected positive cash flow should be sufficient to meet the
Company's cash needs in 1996.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.69 Supplemental Retirement Agreement between SpecTran
Corporation and Raymond E. Jaeger dated May 8, 1996.
Exhibit 10.70 Supplemental Retirement Agreement between SpecTran
Corporation and Bruce A. Cannon dated May 8, 1996.
Exhibit 10.71 Supplemental Retirement Agreement between SpecTran
Corporation and Crawford L. Cutts dated May 8, 1996.
Exhibit 10.72 Supplemental Retirement Agreement between SpecTran
Corporation and William B. Beck dated May 8, 1996.
Exhibit 10.73 Supplemental Retirement Agreement between SpecTran
Corporation and John E. Chapman dated May 8, 1996.
Exhibit 10.74 Lease between CRJ Realty Trust and SpecTran
Communication Fiber Technologies, Inc. dated July 22,
1996.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
which this report was filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SPECTRAN CORPORATION
(Registrant)
Date: August 9, 1996 BY:
/s/ Glenn E. Moore
-------------------------------------------------
Glenn E. Moore
President and Chief Executive Officer
Date: August 9, 1996 BY:
/s/ Bruce A. Cannon
-------------------------------------------------
Bruce A. Cannon
Senior Vice President and Chief Financial Officer
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